How many insiders should sit on Goldman’s board?

March 28, 2012
Lauren LaCapra has the story:

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What to make of the discussions within Goldman Sachs about splitting the jobs of chairman and CEO? Lauren LaCapra has the story:

Proposals to separate the CEO and chairman roles have long been sought by outside groups, but two people familiar with management thinking provided the first indication that internal discussions about such a move have taken place.

Under a restructure, President Gary Cohn would take the chief executive officer role and Vice Chairman J. Michael Evans would be elevated to president, leaving current CEO and Chairman Lloyd Blankfein with only the chairman role, the two sources said.

Things almost certainly won’t play out exactly this way: machinations at the top of Goldman Sachs are highly complex and unpredictable. But the time is clearly coming when Lloyd Blankfein is going to step back from his job as CEO, and like most powerful CEOs he’s likely to want to stay on as chairman when he does that. So while Blankfein has been understandably reluctant to split the two roles up until now, the idea is increasingly becoming aligned with his own interests.

If this plan were to go into effect, the number of current Goldman executives on the board of directors would technically remain flat at two: Evans would join Blankfein and Cohn, but Blankfein would no longer hold his executive role. However, as a non-executive former CEO sitting on the board, Blankfein would continue to wield a lot of influence, just like former Goldman president and current director Stephen Friedman does. As a result, the collective ability of the firm’s insiders to drive board decisions would, at least in theory, be strengthened.

Realistically, however, I think that this move would give the board more control over how Goldman is run, rather than less. The last two holders of the chairman-and-CEO position — Hank Paulson and Blankfein — have done an extremely good job of controlling the board. Indeed, in recent history the board has been more of a problem to be managed than a powerful entity to whom the CEO is accountable.

What’s more, Blankfein and Cohn have presented a united front: they don’t engage in the kind of Machiavellian infighting that we saw between Paulson and Corzine, for instance, or even between Cohn and Jon Winkelreid. As such, the executives on the Goldman board are both very much singing from the same songbook.

With Evans on the board, however, things change. He’s a banker rather than a trader, a clear alternative to the Blankfein-Cohn axis, rather than a reinforcement of it. More than anybody else on the board, he would have the inside knowledge and the credibility to push a real change in direction at the bank, if that was what he thought warranted.

So while at most companies having four insiders on the board would be considered a bad thing from a governance perspective, in this case I suspect that insiders are the only people with enough clout to actually effect any change at all. The non-Goldman directors on the board are a bit more than muppets, but not much more: their job is, ultimately, to rubber-stamp whatever Blankfein wants them to do, and they’ve been very good at doing that. If anybody is going to push back against that rubber-stamp role it’s likely to be Michael Evans, especially if he can bring Friedman onside.


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